I have been a CPA for over 30 years focusing on taxation. I have extensive experience with partnerships, real estate and high net worth individuals.
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Will E-cigarettes Become A Taxing Experience ?

How often does somebody walk into a convenience store and ask to buy a pack of taxes ? Well it is a slight exaggeration to think of a pack of cigarettes that way except maybe in New York City where the combined local and state tax is $5.85. Don’t forget that there is a federal tax of about a buck a pack. It is not surprising that people look for ways around the taxes. One of the first underworld jobs of my hero, Repairman Jack, was driving cigarettes from Virginia to New Jersey. You can read all about it in Cold City by F. Paul Wilson. There are some legal ways, but they have drawbacks.

Roll Your Own

After finishing a year in VISTA, I spent the summer of 1975 in Worcester, MA living in a rooming house and showing up at Manpower every morning for day labor assignments. The laundry room at St. Vincent’s hospital was one of the more pleasant assignments. One of my fellow laborers clued me in to the great price advantage of rolling your own cigarettes. I favored Bugler. The image on the pack always made me think of From Here To Eternity

I never got very good at it. Senator John McCain’s grandfather, Admiral John “Slew” McCain, learned how to fly when he was in his fifties so he would be eligible to command aircraft carriers. Pretty impressive. What really impressed people, though, was that he could roll cigarettes with one hand. He favored Bull Durham.

Hand rolling being such a difficult art, entrepreneurs came up with an alternative. You go to their store buy loose tobacco and papers and they let you use their fancy machines to make your own cigarettes. That loophole was closed last year. Roll your own shops are treated for excise tax purposes in the same manner as manufacturers.

e-cigarettes

The next frontier of cigarette excise avoidance is more high tech than rolling your own. Ilana Greene introduced me to Kevin Frija then CEO of Vapor Corp. E-cigarettes work by vaporizing a liquid solution into an aerosol mist. There is no reason, in principle, for them to look anything like regular cigarettes, but they frequently do, even going so far as to having the tip glow when you inhale. There is still controversy about their health effects. There seems to be a pretty good argument that they are probably not as bad for you and those around you as regular cigarettes. With an e-cigarette your nicotine is delivered with propylene glycol and vegetable glycerin rather than tar and ash. Second hand smoke is mainly from you exhaling rather than continuous. Let’s not forget that according to FEMA, about 1,000 people per year die in fires caused by what is euphemistically referred to as “the careless disposal of smoking materials.” MacGyver could probably figure out how to start a fire with an e-cigarette, but there is probably not a way it could happen by accident.

Given all that Mr. Frija said that he thinks that the government should be figuring out ways to subsidize his company’s product rather than tax it. He also indicates that it is rather challenging to figure out how to apply the same tax to e-cigarettes since the excises tend to be based on weight of tobacco. E-cigarettes don’t have tobacco. Of course, the ones that have nicotine have a tobacco derived substance, so you could probably do some fancy math and figure out a tobacco weight equivalent.

There is a push to tax e-cigarettes like regular cigarettes. The latest threat was in Utah. The debate centers around how good or bad these things are for people, but there may be another factor at work, which is a problem created by sin taxes. The taxes may first be pitched to discourage the bad behavior, but the taxes are a revenue source. If they successfully redirect behavior, revenue declines. Consider this story from Sacramento about the fiscal havoc wreaked by people becoming more scrupulous about obeying the parking laws. There you are talking about fines rather than taxes, but the distinction is often pretty thin.

Probably the best course to avoid tobacco excise taxes, is to not smoke. It works for me.

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“Probably the best course to avoid tobacco excise taxes, is to not smoke.”

Cigarettes are taxed, presumably, because of the burden the put on taxpayers in the form of health care costs. E-cigarettes have not been shown to have any such costs associated with them, as there are no known health risks.

A better course of action, ignoring the fact that using e-cigarettes is not smoking, is to not allow the government to extort money from people just because they can. Taxes against e-cigarettes can, and should be fought vigorously. Any such taxes would be groundless, and completely unjustified.

Absolutely correct. People are so easily fooled into allowing a tax, but the fact is if they can’t make up the tax revenue from the advancing deficit in tobacco smokers they will have to tax more elsewhere.

Since the other jerks don’t want to pay higher taxes, it makes it easy for them to turn to being self righteous and hit the e-smokers.

I move to e-cigarettes a few months ago and haven’t smoked a real cigarette since. I was a smoker for over twenty years. Within two days of switching, my chronic morning cough disappeared, as did my “after cigarette” cough. Honestly, I haven’t felt this good in a long while.

Food tastes better, things smell better, hell *I* smell better. There is zero proof currently that e-cigarettes are a major health risk, or any health risk. If they do tax e-cigarettes heavily like that, coffee better be next. It’s no different.

Obviously not smoking is a great way not to pay sin taxes. It’s easier said than done when your not addicted. My wife smoked tobacco cigarettes for 15 years before we bought her an electronic cigarette. She hasn’t smoked since and my family is no longer exposed to 2nd hand smoke. Everyone knows that tobacco cigarettes are way worse then e cigarettes, its just about the Government making money so we they can continue to pay members of the Government that we don’t need to make policies and laws that are useless. http://iknowecigs.com

From what I hear from family and friends, e cigarettes work extremely well helping people quit smoking. So as more and more smokers kick the tobacco habit, the government well certainly will need to tax e cigs. http://chooseecigarettes.com/

No study to date has conclusively proven that e-cigarettes are harmful or more harmful than for example nicotine patches. In fact, research has found that they may in fact be more effective at helping addicts quit by addressing both the psychological and physical addition.

From a common sense and logical point of view, there is no reason why e-cigarettes should have any more harmful an effect than any other product containing nicotine such as patches and the like. They all use nicotine in its derived form rather than tobacco form.

Perhaps the reason there has been such a backlash against ecigs is actually due to political and financial reasons rather than any actual evidence. If it is admitted that they are as safe as nicotine patches, there would be no justification left to tax them or remove them from sale. Bad news for the taxman and bad news for the tobacco industry.

An electronic cigarette as an innovation is really on the way of tobacco Companies, so there is no wonder they try to protect their business. E-cig is a comparatively new product on this market, but can form a good competitor with time. There are discussions regarding electronic cigarette being a threat, since they also contain nicotine. I, personally, try to quit smoking and already using nicotine free e-cigs from airsmoke.eu, so will they be also taxed? There is no nicotine or tobacco in why to tax?